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CIRCULAR No

CIRCULAR No. 48/2001/TT-BTC OF JUNE 25, 2001 GUIDING THE IMPLEMENTATION OF TAX PROVISIONS APPLICABLE TO ORGANIZATIONS AND INDIVIDUALS CONDUCTING OIL AND GAS PROSPECTION, EXPLORATION AND EXPLOITATION ACTIVITIES UNDER THE PETROLEUM LAW

Pursuant to the Petroleum Law passed by the National Assembly of the Socialist Republic of Vietnam on July 6, 1993, the Law Amending and Supplementing a Number of Articles of the Petroleum Law, passed by the National Assembly of the Socialist Republic of Vietnam on June 9, 2000 and the Government�s Decree No. 48/2000/ND-CP of September 12, 2000 detailing the implementation of the Petroleum Law;

Pursuant to the Law on Foreign Investment in Vietnam passed by the National Assembly of the Socialist Republic of Vietnam on November 12, 1996, the Law Amending and Supplementing a Number of Articles of the Law on Foreign Investment in Vietnam passed by the National Assembly of the Socialist Republic of Vietnam on June 9, 2000 and the Government�s Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam;

Pursuant to the current tax laws and ordinances of the Socialist Republic of Vietnam and the Government�s Decrees detailing the implementation of the tax laws and ordinances;

Pursuant to the Government�s Decree No. 178/CP of October 28, 1994 defining the tasks, powers and organizational structure of the Finance Ministry;

The Finance Ministry hereby guides the implementation of tax provisions applicable to organizations and individuals conducting oil and gas prospection, exploration and exploitation activities under the Petroleum Law as follows:

Part One

GENERAL PROVISIONS

1. The guidances in this Circular shall apply to organizations and individuals conducting oil and gas prospection, exploration and exploitation activities in Vietnam under the provisions of the Petroleum Law and the Government�s Decree No. 48/2000/ND-CP of September 12, 2000 detailing the implementation of the Petroleum Law (hereinafter called Decree No. 48/2000/ND-CP for short).

2. Organizations and individuals conducting oil and gas prospection, exploration and exploitation activities shall comply with the tax provisions guided in this Circular according to each petroleum contract, concretely:

l For petroleum contracts signed in the form of production-sharing contract, the operators shall have to represent the contractors to declare and pay tax (hereinafter referred collectively to as tax payers).

l For petroleum contracts signed in the form of joint- administration contract, the joint- administration companies shall have to represent the contractors to declare and pay tax (hereinafter referred collectively to as tax payers).

l For petroleum contracts signed in the form of joint-venture contract for the establishment of joint-venture enterprises having Vietnamese legal person status, the joint-venture enterprises shall be the tax payers.

l For cases where Vietnam Oil and Gas Corporation conducts the oil and gas prospection, exploration and exploitation activities by itself, Vietnam Oil and Gas Corporation shall be the tax payer.

3. Where an organization or individual conducts oil and gas prospection, exploration and exploitation activities under different petroleum contracts, the implementation of tax provisions under this Circular�s guidance shall be effected separately according to each petroleum contract.

4. Where the contractors participating in petroleum contracts in form of production-sharing contract or joint-administration contract receive the contractual shares divided in oil and gas and take responsibility to consume their divided shares of oil and gas, the declaration and payment of taxes on petroleum activities shall comply with separate guidance.

5. Where international treaties and/or inter-governmental agreements, which the Vietnamese government has signed, contain tax provisions for oil and gas prospection, exploration and exploitation activities different from the tax provisions in this Circular, the tax payment by organizations and individuals conducting oil and gas prospection, exploration and exploitation shall comply with the signed international treaties and/or inter-governmental agreements.

Part Two

GUIDING THE IMPLEMENTATION OF TAX PROVISIONS

I. NATURAL RESOURCE TAX

1. Taxation objects:

The whole output of crude oil and natural gas actually exploited from the entire area under the petroleum contracts shall be liable to natural resource tax.

Where in the course of exploiting crude oil and natural gas, organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities are allowed to exploit other natural resources subject to natural resource tax as provided for by law on natural resource tax, the tax payment shall comply with current legislation.

2. Determining payable tax amounts:

The natural resource tax on crude oil and natural gas shall be determined on the basis of partial progress of the total net crude oil and natural gas output exploited in the period of tax payment calculated according to the daily average crude oil and natural gas output exploited from the entire contractual areas.

Determining payable natural resource tax in oil and gas:

The natural Daily average taxable The natural The number of days�

resource tax in crude = crude oil or natural gas x resource x exploiting crude oil or

oil, natural gas output in the tax tax rate natural gas tax in the

payment period payment period

In which:

l The daily average crude oil or natural gas output liable to natural resource tax is the total net crude oil or natural gas output liable to natural resource tax, exploited in the tax payment period, divided by the number of the exploitation days in the tax payment period.

l The natural resource tax rate: prescribed at the Natural Resource Tax Index, Article 44, Article 45 of Decree No.48/2000/ND-CP, concretely:

For crude oil:

Exploitation output

Projects with investment incentives

Other projects

Up to 20,000 barrels/day

4%

6%

Over 20,000 barrels to 50,000 barrels/day

6%

8%

Over 50,000 barrels to 75,000 barrels/day

8%

10%

Over 75,000 barrels to 100,000 barrels/day

10%

15%

Over 100,000 barrels to 150,000 barrels/day

15%

20%

Over 150,000 barrels/day

20%

25%

For natural gas:

Exploitation output

Projects with investment incentives

Other projects

Up to 5 million m3/day

0%

0%

Over 5 million m3 to 10 million m3/day

3%

5%

Over 10 million m3/day

6%

10%

For petroleum contracts signed before the Petroleum Law takes effect, which contain no agreement on natural resource tax rate or contain agreement on the tax rates other than those mentioned above, the above-mentioned tax rates shall apply to the oil and gas output actually exploited as from July 1, 2000 (the date the Law Amending and Supplementing a Number of Articles of the Petroleum Law took effect).

The natural resource tax rates for crude oil or natural gas exploited under the petroleum contracts with investment incentives shall be based on the list of petroleum projects with investment incentives, decided by the Prime Minister.

l The number of days� exploiting crude oil or natural gas in the tax payment period is the number of days of carrying the activity of exploiting crude oil or natural gas in the tax payment period, excluding days on which production stops due to any reasons.

Example 1. Determining the payable natural resource tax in crude oil for cases of crude oil exploitation:

Presumably:

+ Total net crude oil exploited in the tax payment period : 15,600,000 barrels;

+ The number of production days in the tax payment period : 78 days;

+ The daily average crude oil output liable to natural resource tax in the tax payment period: 200,000 barrels/day (15,600,000 barrels: 78 days);

+ Crude oil exploited under contracts not on the list of projects with investment incentives (where crude oil is exploited under contracts on the list of projects with investment incentives, it is calculated similarly with the natural resource tax rate applicable to projects with investment incentives).

The natural resource tax in crude oil payable in the tax payment period:

{(20,000 x 6%) + (30,000 x 8%) + (25,000 x 10%) + (25,000 x 15%) + (50,000 x 20%) + (50,000 x 25%) } x 78 days = 2,523,300 barrels.

Example 2: Determining the payable natural resource tax in natural gas for cases of natural gas exploitation:

Presumably:

+ The total net natural gas output exploited in the tax payment period: 858,000,000 m3;

+ The number of production days in the quarter: 78 days;

+ The daily average natural gas output liable to natural resource tax in the tax payment period: 11,000,000 m3 (858,000,000 m3 : 78 days);

+ The natural gas exploited under contracts not on the list of projects with investment incentives (for cases where the natural gas is exploited under contracts on the list of projects with investment incentives, it shall be calculated similarly with the natural resource tax rates applicable to projects with investment incentives).

The natural resource tax in natural gas payable in the tax payment period:

{(5,000,000 x 5%) + (1,000,000 x 10%)} x 78 days = 27,300,000 m3.

3. Tax declaration, payment and final settlement:

The natural resource tax shall be paid either in cash or in oil and gas. Where it is paid in oil and gas, the tax office shall notify it in writing 6 months in advance and guide in detail the natural resource tax declaration and payment in oil and gas.

The natural resource tax payment period shall be quarter (3 months) according to calendar year.

- The first natural resource tax payment period shall last from the first day of oil and gas exploitation till the last day of a quarter.

- The last natural resource tax payment period shall last from the first day of a quarter till the day the oil and gas exploitation ends.

3.1. Temporary payment of natural resource tax:

3.1.1. The temporarily paid natural resource tax amount shall be determined as follows:

The temporarily paid The crude oil or natural The percentage of Price for calculation

natural resource = gas output actually x temporarily paid x of temporarily paid

tax amount delivered for sale natural resource tax natural resource tax

In which:

l The crude oil or natural gas output actually delivered for sale is the net crude oil or natural gas output already delivered for sale.

l The percentage of temporarily paid natural resource tax shall be determined under the guidance below:

The The natural resource tax projected

temporarily for payment in oil and gas in a year

paid natural = ������������� x 100%

resource tax The oil and gas output liable to

percentage natural resource tax in a year

+ The natural resource tax projected to be paid in oil and gas in a year shall be determined under the guidance at Point 2, Section I, Part Two of this Circular, on the basis of oil and gas output projected to be exploited in the year.

+ The oil and gas output liable to natural resource tax in a year shall be the net oil and gas output projected to be exploited in the year.

At least 60 days before the end of the calendar year, the tax payers shall have to forward to the Finance Ministry the projected net oil and gas output to be exploited and the projected number of days of oil and gas exploitation of the following year.

Basing itself on the net oil and gas output, the projected annual exploitation and the natural resource tax index for crude oil and natural gas, before December 15 every year, the Finance Ministry or the bodies authorized by the Finance Ministry shall determine and notify the tax payers of the percentage of temporarily paid natural resource tax for next year.

Where in the course of temporary payment of natural resource tax, the projected oil and gas output and the projected number of oil and gas exploitation days in the last six months of the year are at variance with the reported plans, thus increasing or reducing the percentage of temporarily paid resource tax by 15% or more as against the temporarily paid natural resource tax percentage already notified by the Finance Ministry, the tax payers shall have to report such to the Finance Ministry before May 31 for re-determination of the temporarily paid resource tax percentage in the last 6 months.

Example 3: Determining the temporarily paid natural resource tax percentage:

- Determining the temporarily paid natural resource tax percentage for crude oil:

Presumably:

+ The net crude oil output projected to be exploited in the year: 62,400,000 barrels;

+ The projected number of exploitation days in the year: 312 days;

+ The daily average taxable crude oil output: 200,000 barrels/day;

+ The natural resource tax projected to be paid in the year (to be determined as guided at Point 2, Section I, Part Two of this Circular): 10,093,200 barrels.

The percentage of temporarily paid natural resource tax from crude oil exploitation is:

10,093,200

����� x 100% = 16.175%

62,400,000

- Determining the temporarily paid natural resource tax percentage for natural gas:

Presumably:

+ The net natural gas output projected to be exploited in the year: 3,432,000,000 m3;

+ The projected number of exploitation days in the year: 312 days;

+ The daily average natural gas output liable to natural resource tax: 11,000,000 m3;

+ The natural resource tax projected to be paid in the year (determined as guided at Point 2, Section I, Part Two of this Circular): 109,200,000 m3.

The percentage of temporarily paid natural resource tax from natural gas exploitation is:

109,200,000

������ x 100% = 3.181%

3,432,000,000

l The price for calculation of temporarily paid natural resource tax is the oil and gas selling price at the delivery and reception place up on each delivery for sale under square transaction contracts. Where oil and gas are not sold under square transaction contracts, the tax offices of the localities where the tax payers register tax (hereinafter called collectively the local tax offices) shall determine the price for natural resource tax calculation according to the following principles:

- For crude oil: The local tax offices shall determine the natural resource tax calculation price on the basis of the arithmetic mean of the selling price of crude oil of the same category on the international market of three weeks in a row: the week before, the week during and the week after the crude oil delivery. The tax payers shall have to supply the tax offices with information on the composition and quality of crude oil being exploited. When necessary, the tax offices may consult with the Oil and Gas Corporation of Vietnam on the determination of the price of crude oil being exploited by the tax payers among the categories of crude oil with their selling prices announced on the international market.

- For natural gas: The local tax offices shall determine the natural resource tax calculation price on the basis of the selling price of natural gas of the same category on the market, the delivery and reception place as well as other relevant factors. When necessary, the tax offices may consult with the Oil and Gas Corporation of Vietnam on the determination of natural resource tax calculation price for the natural gas.

3.1.2. Time limits for natural resource tax declaration and temporary payment:

- For crude oil exploitation:

Within 35 days as from the date of delivering crude oil for sale, the tax payers shall have to make and send to the tax offices the declaration on temporary payment of natural resource tax (made according to set form) and at the same time temporarily pay the natural resource tax as declared for the crude oil output actually delivered for sale into the State Treasury.

- For natural gas exploitation:

Not later than the 10th day of the following month, the tax payers shall make and send the declaration on temporary payment of resource tax (made according to set form) and pay the natural resource tax on the net natural gas output exploited in the previous month into the State Treasury according to the time limits inscribed in the tax notices, but must not be later than the 25th of the following month.

Past the above time limits, if the tax payers still fail to send the declarations on temporary payment of natural resource tax and enclose documents thereon to the tax offices, the latter may set the natural resource tax amounts and notify the tax payers of the natural resource tax amount to be temporarily paid, issue decisions on sanction against the late tax declaration and payment according to the current law provisions and notify the time limits for the payment of natural resource tax set by the tax offices and fines (if any).

3.2. Final settlement of natural resource tax:

The natural resource tax shall be settled on the basis of net oil and gas output actually exploited in the period of tax payment, concretely as follows.

3.2.1. The settlement of natural resource tax for crude oil exploitation:

3.2.1a. Determining the natural resource tax to be paid in crude oil in the tax payment period:

The natural resource The daily average crude The The number of crude

tax to be paid in oil output liable to natural oil exploitation

crude oil in the tax = natural resource tax x resource x days in the tax

payment period in the tax payment period tax rate payment period

3.2.1b. Determining the percentage of natural resource tax in crude oil of the exploitation output in the tax payment period:

The natural resource tax to be paid

The percentage of natural in crude oil in the tax payment period

resource tax in crude oil = ���������������� x 100%

in the tax payment period The crude oil output exploited

in the tax payment period

3.2.1c. Determining the natural resource tax in crude oil delivered for sale in the tax payment period:

The natural resource tax The crude oil The percentage of natural

in crude oil delivered for sale = output x resource tax in crude oil

in the tax payment period delivered for sale in the tax payment period

3.2.1d. Determining the natural resource tax in crude oil not yet delivered for sale in the tax payment period for use as basis for settling the natural resource tax in crude oil to be paid for the subsequent tax payment period:

The natural The natural resource The natural The natural

resource tax in crude tax in crude oil not resource oil resource tax in

oil not yet delivered = yet delivered for sale + payable in the - crude oil delivered

for sale in the tax in the previous tax tax payment for sale in the tax

payment period payment period period payment period

3.2.1e. Determining the payable amount from the natural resource tax crude oil delivered for sale in the tax payment period:

The payable amount The natural The

from the natural resource resource tax natural resource

tax in crude oil delivered = in crude oil delivered x tax calculation

for sale in the tax for sale in the tax price for

payment period payment period crude oil

In which:

l The natural resource tax in crude oil delivered for sale in the tax payment period shall be determined as guided at Point 3.2.1c above;

l The natural resource tax calculation price for crude oil is the weighted average price of crude oil sold at the delivery place under the square transaction contract in the tax payment period.

Example 4: Determining the natural resource tax calculation price:

Presumably: The crude oil output allowed for sale in the quarter (10,000,000 barrels) is delivered for sale in three lots: Lot 1 of 2,000,000 barrels sold at the price of USD 18/barrel; lot 2 of 2,000,000 barrels sold at the price of USD 20/ barrel; lot 3 of 6,000,000 barrels sold at the price of USD 14/barrel.

The natural

resource tax (2,000,000 x 18) + (2,000,000 x 20) + (6,000,000 x 14)

calculation = ���������������������� = USD16/barrel

price for 10,000,000

crude oil

Where crude oil is not sold under square transaction contracts, the natural resource tax calculation price shall be determined as guided at Point 3.1. Section I, Part Two of this Circular.

3.2.1f. Determining the underpaid (or overpaid) amount from the natural resource tax crude oil delivered for sale in the tax payment period:

The underpaid The underpaid The amount The natural

(or overpaid) amount (or overpaid) from the natural resource

from the natural amount from the resource tax tax amount

resource tax in crude = natural resource tax + in crude - temporarily

oil delivered in crude oil delivered oil to be paid paid in the tax

for sale in the tax for sale in the previous in the tax payment

payment period tax payment period payment period period

In which:

l The amount of money from the sale of natural resource tax in crude oil underpaid (or overpaid) in the previous tax payment period shall be determined according to the natural resource tax settlement declaration of the previous tax payment period.

l The amount of money from the sale of natural resource tax in crude oil to be paid in the tax payment period shall be determined under the guidance at Point 3.2.1e, Section I, Part Two of this Circular.

l The temporarily paid natural resource tax amount shall be determined under the guidance at Point 3.1, Section I, Part Two of this Circular.

3.2.2. Settlement of natural resource tax for natural gas exploitation:

3.2.2a. Determining the natural resource tax in natural gas to be paid in the tax payment period:

The natural The daily average

resource tax in natural gas output The natural The number of days of

natural gas to be = liable to natural x resource x natural gas exploitation

paid in the tax resource tax in the tax rate in the tax payment period

payment period tax payment period

3.2.2b. Determining the amount to be paid from the natural resource in tax natural gas delivered for sale in the tax payment period:

The payable amount from the sale The natural resource tax The natural resource

of natural resource tax in natural = in natural gas to be paid x tax calculation

gas in the tax payment period in the tax payment period price for natural gas

In which:

l The natural resource tax in natural gas to be paid in the tax payment period shall be determined as guided at Point a above;

l The natural resource tax calculation price for natural gas is the selling price under the square transaction contract at the delivery and receipt place in the tax payment period.

Where the natural gas is not sold under square transaction contracts, the natural resource tax calculation price shall be determined as guided at Point 3.1, Section I, Part Two of this Circular.

3.2.2c. Determining the underpaid (or overpaid) amount from the sale of natural resource tax in natural gas in the tax payment period:

The underpaid The underpaid The amount The natural

(or overpaid) (or overpaid) amount from the sale resource

amount from sale from the sale of of natural resource tax amount

of natural resource = natural resource + tax in natural - temporarily

tax in natural gas tax in natural gas gas to be paid paid in the

in the tax in the previous tax in the tax tax payment

payment period payment period payment period period

In which:

l The underpaid (or overpaid) amount from the sale of natural resource tax in natural gas in the previous tax payment period shall be determined according to the natural resource tax settlement declaration of the previous tax payment period.

l The amount from the sale of natural resource tax in natural gas to be paid in the tax payment period shall be determined as guided at Point 3.2.2b, Section I, Part Two of this Circular.

l The temporarily paid natural resource tax amount shall be determined as guided at Point 3.1, Section I, Part Two of this Circular.

Within the first 40 days of the following quarter, the tax payers shall have to declare and send to the tax offices the natural resource tax settlement of the previous tax payment period (made according to the set form).

Upon the tax settlement, if the temporarily paid tax amount in the tax payment period is larger than the payable tax amount, the overpaid tax amount shall be cleared against the payable tax amount of the next tax payment period; if the temporarily paid tax amount is smaller than the payable tax amount, the tax payers shall have to fully pay the outstanding tax amount into the State Treasuries at the time when the resource tax settlement sheet is submitted. Where tax payers are detected as having falsely declared the natural resource tax settlement, the tax offices shall, within 7 days after receiving the resource tax settlement, notify such tax payers in writing of the official tax amounts that would be paid in the previous tax payment period and the deadline for making the resource tax settlement.

Past the above-said 40 day- time limit, if the tax payers still fail to send to the tax offices the resource tax settlement of the previous tax payment period, the tax offices may fix the tax amounts to be paid for the previous tax payment period, notify the tax payers of the fixed tax amounts, the temporarily paid tax amounts in the tax payment period, the overpaid tax amounts deducted into the payable tax amount of the next tax payment period (if any), or the outstanding tax amount to be paid as well as of the decisions on sanction against the late tax declaration and payment according to the current law provisions and the deadline for payment of the outstanding tax and fines (if any).

Where there is no subsequent tax payment period while the temporarily paid natural resource tax amount is larger than the tax amount payable in the tax payment period, the Finance Ministry shall refund the overpaid tax amounts to the tax payers. The dossiers of requesting the tax reimbursement shall comply with the guidance in Circular No.25/2000/TT-BTC of March 30, 2000 of the Finance Ministry, including:

+ The official dispatch requesting the reimbursement of overpaid tax amount. The official dispatch must clearly state the reasons for such tax reimbursement request; the name, tax code, address, account number of the tax reimbursement requester;

+ The list of the tax amounts paid in the final tax payment period, enclosed with vouchers on money payment into the State Treasuries (the copies certified by the tax reimbursement requester) and the written certification of the State Treasuries of the paid tax amounts (clearly inscribing the tax amounts paid into chapters, categories, items, grades as provided for by the Budget Index);

+ The tax office�s notice on natural resource tax settlement of the final tax payment period, clearly inscribing the overpaid natural resource tax amount to be refunded (copies certified by the tax reimbursement requester).

The dossiers requesting the tax reimbursement shall be addressed to the local tax offices where the tax payers have registered their tax payment. The tax offices shall check the dossiers. If the tax reimbursement- requesting dossiers are complete and valid, the tax offices shall, within 7 days, have to forward the tax reimbursement dossiers to the Finance Ministry (The General Department of Tax) so that the latter shall consider and issue decisions on tax reimbursement. Where the tax reimbursement dossiers are incomplete and invalid, the tax offices shall, within 5 days, notify such in writing to the tax reimbursement requesters.

Within 15 days after receiving the complete and valid dossiers, the Finance Ministry shall issue decisions on tax reimbursement for the tax reimbursement requesters.

II. EXPORT TAX, IMPORT TAX

Organizations and individuals conducting oil and gas prospection, exploration and exploitation activities shall pay export tax and import tax according to the provisions of the current Law on Import Tax and Export Tax. Besides, the Finance Ministry guides a number of specific contents as follows:

1. Crude oil export tax:

The crude oil export tax shall be determined as follows:

The crude The exported The tax The crude

oil export = crude oil x calculation x oil export tax

tax amount volume price percentage

In which:

l The exported crude oil volume is the net crude oil actually exported.

l The tax calculation price is the crude oil selling price under the square transaction contract. Where crude oil is not sold according to the square transaction contract, the export tax calculation price shall be determined as guided at Point 3.1, Section I, Part Two of this Circular.

l The crude oil export tax percentage:

The crude The temporarily The crude oil export tax

oil export tax = 100% - paid resource x rate according to the

percentage tax percentage current Export Tariff

Example 5. Determining the export tax percentage for exported crude oil:

Presumably:

+ The temporarily paid natural resource tax according to the above-mentioned example 3: 16.175%

+ The crude oil export tax rate according to the current Export and Import Tariff: 4%

The crude oil export tax percentage:

3.353% = {(100% - 16.175%) x 4%}

Before December 15 every year, the Finance Ministry or the bodies authorized by the Finance Ministry shall base themselves on the temporarily paid natural resource tax percentage and the crude oil export tax rate to notify the percentage of export tax temporarily paid for each petroleum contract. Where there is change in the projected oil and gas output to be exploited in the last 6 months, thus requiring the readjustment of the percentage of the temporarily paid natural resource tax as guided at Point 3.1, Section I, Part Two of this Circular, the Finance Ministry shall re-determine and re-notify the crude oil export tax percentage.

For contracts on petroleum being under exploitation, if the tax payers have already paid the export tax for the crude oil volume being the natural resource tax of the net crude oil output exported as from July 1, 2000, the already paid export tax amount for the natural resource tax crude oil not subject to export tax shall be deducted into the payable export tax amounts of the subsequent tax payment periods. In order to supply basis for determining the export tax amount already paid for the natural resource tax in crude oil of the net crude oil output, exported as from July 1, 2000, the tax payers shall have to send their dossiers to the Finance Ministry (the General Department of Tax), including:

+ The list of the net oil and gas outputs, having been exploited from June 30, 2000 backward, left in export stock after July 1, 2000; the net oil and gas outputs, exploited from July 1, 2000 to December 31, 2000; the net export oil and gas volumes exported according to goods export and import declarations from July 1, 2000 to December 31, 2000; the net oil and gas outputs, having been exploited before December 31, 2000, left in export stock after January 1, 2001;

+ The list of export tax amounts and copies of vouchers on payment of crude oil export tax already paid for the net crude oil output actually exported according to the goods export and import declarations as from July 1, 2000;

+ The settlement of natural resource tax for the net oil and gas output, exploited as from July 1, 2000.

2. Crude oil export tax declaration and payment:

The procedures for crude oil export tax declaration and payment shall comply with the provisions of the legislation on export tax and import tax.

The time limit for crude oil export tax payment shall be 35 days as from the date the customs offices carry out the procedures for crude oil export.

Past the above-said time limit, if tax payers still fail to declare and pay export tax, the customs offices shall apply measures to handle the violations of the regulations on declaration and late payment of export tax according to the provisions of the legislation on export tax and import tax.

3. Export tax exemption:

3.1. Organizations and individuals conducting oil and gas prospection, exploration and exploitation activities that directly import or entrust the import of, goods, shall be exempt from the import tax for import goods mentioned in Article 54 of Decree No. 48/2000/ND-CP.

Basing itself on the investment license, working program, annual budget and list of supplies which can be produced at home, promulgated by the Ministry of Planning and Investment, the Trade Ministry shall approve the list of duty-free import goods, duty-free goods temporarily imported for re-export in service of the oil and gas prospection, exploration and exploitation activities of each petroleum contract.

Basing themselves on the approved list of duty-free import goods, duty-free goods temporarily imported for re-export, the Customs Departments of the provinces and centrally-run cities shall oversee the import under the petroleum contracts. Quarterly, the Customs Departments shall make and send the sum-up reports on export turnover, import turnover, the volumes of import goods of petroleum contracts to the Finance Ministry and the General Department of Customs.

3.2. Subcontractors, other organizations and individuals, that directly import or entrust the import of, goods shall be exempt from import tax for goods mentioned in Article 54 of Decree No. 48/2000/ND-CP, which are imported to supply for organizations and/or individuals conducting oil and gas prospection, exploration and exploitation through petroleum service contracts or goods supply contracts, signed with the organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities.

The dossiers to be produced to the Customs office for import tax exemption shall include:

+ The official dispatch requesting the import tax exemption;

+ Documents related to goods import (as provided for import goods);

+ Certification by the organizations and/or individuals conducting oil and gas prospection, exploration and exploitation of the quantity, categories and specifications of goods exempt from import tax, which are used for oil and gas prospection, exploration and exploitation activities under the signed petroleum service contracts or goods supply contracts;

+ The petroleum service contracts or the goods supply contracts signed with organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities (the copies certified by units). Where goods are imported many times, they shall be presented only upon the first importation;

+ The list of goods exempt from import tax, granted by the Trade Ministry to organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities (the copies certified by organizations or individuals conducting oil and gas prospection, exploration and exploitation activities). Where goods are imported many times, such list shall be produced only upon the first importation;

+ The contract on import or entrusted import of goods in service of oil and gas prospection, exploration and exploitation activities (the copies certified by the units). Where goods are imported many times, such contract shall be produced only upon the first importation.

Upon the expiry of the time limit for the performance of the goods supply contract or the service provision contract, the subcontractors or other organizations and individuals shall have to make tax settlement with the customs offices where the import tax exemption procedures are carried out and notify the organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities of the quantity and value of goods exempt from import tax and actually used for oil and gas prospection, exploration and exploitation activities. The volume of goods exempt from import tax but not used for oil and gas prospection, exploration and exploitation activities must be subject to the retrospective collection of import tax according to the provisions of the current legal documents on export tax and import tax.

Organizations and individuals conducting oil and gas prospection, exploration and exploitation shall have to settle with the customs offices where they have registered the goods import the quantity and value of goods imported duty free by subcontractors or other organizations and individuals.

The import tax exemption guided at this Point 3.2 shall apply to goods supply contracts signed with organizations or individuals conducting oil and gas prospection, exploration and exploitation activities as from the effective date this of Circular.

4. Declaration and retrospective payment of import tax:

4.1. If the import duty-free goods mentioned in Article 54 of Decree No. 48/2000/ND-CP are used for purposes other than those entitled to import tax exemption or sold on the Vietnamese market, the permission of the Trade Ministry is required. Organizations and individuals conducting oil and gas prospection, exploration and exploitation must retrospectively pay the already exempted import tax amounts.

For goods imported at the time when the Special Consumption Tax Law has not come into force and already exempt from import tax, but used for purposes other than the primary purposes, or sold on the Vietnamese market at the time the Special Consumption Tax Law takes effect, apart from the retrospective payment of import tax (at the tax rate available at the time of retrospective payment), the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities shall have to pay the special consumption tax for goods subject to special consumption tax.

Within 2 working days as from the date the goods are used for purposes other than those entitled to tax exemption, or the goods-selling date inscribed on relevant vouchers and invoices, the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities shall have to make declarations with the customs offices of the provinces or centrally-run cities where their headquarters are located or with the customs offices of the localities where goods are sold, or with the customs offices where the goods import declarations have been registered (according to the set form). Past the above time limit, if they fail to make the declarations, they shall be sanctioned under the provisions of the Import Tax and Export Tax Law as well as the Special Consumption Tax Law.

The retrospectively paid import tax shall be determined on the tax calculation bases including the tax rate, the exchange rate, the tax calculation rate at the time of retrospective payment.

In the course of managing the tax collection from the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities, the tax offices shall have to supervise the use of duty-free import goods; upon the detection of cases where the goods are used not for the right purposes or already sold, apart from the collection of value added tax according to the provisions of the Law on Value Added Tax, the directors of the provincial/municipal Tax Departments may issue decisions to retrospectively collect the import tax or special consumption tax (if any) and impose sanctions according to the provisions of the Law on Export Tax and Import Tax and the Law on Special Consumption Tax.

4.2. If import duty-free goods mentioned in Article 54 of Decree No. 48/2000/ND-CP are assigned to other organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities under the already approved petroleum contracts, the Trade Ministry�s permission is required. The organizations and individuals conducting oil and gas prospection, exploration and exploitation activities are exempt from retrospective payment of import tax.

Within 2 working days after the assignment of import duty-free goods, the organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities that own the assigned goods shall have to declare such with the customs offices of the provinces or centrally- run cities where they are headquartered, or with the customs offices of the localities where goods are assigned or with the customs offices where the import declarations are registered. The customs offices shall base themselves on the actual goods assignment to issue decisions on import tax exemption and send one copy of such decisions to the customs offices where the subjects re-purchasing the goods have registered the goods import to serve as basis for deduction from the list of duty-free import goods granted by the Trade Ministry to the goods re-purchasers.

4.3. If the import duty-free goods mentioned in Article 54 of Decree No. 48/2000/ND-CP are transferred to Vietnam Oil and Gas Corporation as agreed upon in the petroleum contracts, the Trade Ministry�s permission is required. The organizations and individuals conducting oil and gas prospection, exploration and exploitation activities shall be exempt from retrospective payment of import tax and other relevant taxes.

Within two working days after the import duty-free goods are transferred to Vietnam Oil and Gas Corporation, the organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities shall have to declare such with the customs offices of the provinces or centrally-run cities where they are headquartered, or with the customs offices of the localities where goods are transferred, or the customs offices where the import declarations are registered. The customs offices shall base themselves on the actual goods transfer to issue decisions on import tax exemption.

III. VALUE ADDED TAX (VAT)

Organizations and individuals conducting oil and gas prospection, exploration and exploitation shall pay VAT according to the provisions of the current VAT Law. Besides, the Finance Ministry guides a number of specific contents as follows:

1. Organizations and individuals conducting oil and gas prospection, exploration and exploitation, that directly import or entrust the import of, goods, shall not have to pay VAT on imported goods not subject to VAT as prescribed in Article 55 of Decree No. 48/2000/ND-CP. The procedures and dossiers produced to the customs offices for non-payment of VAT shall comply with the current law provisions on VAT.

In order to supply basis for determining imported supplies not liable to VAT, annually, the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities shall have to send official dispatches committing to the petroleum contracts in the period of prospection, exploration and field development to the customs offices where the goods import procedures are carried out. Within 30 days before the end of the prospection, exploration and field development period, the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities shall have to notify the customs offices of the time of ending the field development period and embarking on the exploitation.

The determination of the import supplies which cannot be produced at home yet and are necessary for exploration and field development activities and not liable to VAT as provided for in Article 55 of Decree No. 48/2000/ND-CP shall apply to goods import declarations as from July 1, 2000 and not apply to petroleum contracts being in the exploitation period and conducting additional prospection, exploration and field development.

2. Subcontractors and other organizations and individuals that directly import or entrust the import of, goods shall not have to pay VAT on VAT-free import goods specified in Article 55 of Decree No. 48/2000/ND-CP to supply them for organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities through petroleum service contracts or goods supply contracts signed with organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities.

The dossiers produced to the customs offices for non-payment of VAT shall be the same as those on import tax exemption stated at Point 3.2, Section II, Part Two of this Circular.

The customs offices shall base themselves on the above-mentioned dossiers, the actual goods import, the list of equipment, machinery, special-use transport means and supplies, which can be produced at home, promulgated by the Ministry of Planning and Investment as well as the commitment to the petroleum contract in the period of prospection, exploration and field development (applicable to cases of importation of supplies) to determine the goods items not liable to VAT.

The guidance on the application of VAT at Point 2, Section III, Part Two of this Circular shall apply to service provision contracts, goods supply contracts signed with organizations and/or individuals conducting oil and gas prospection, exploration and exploitation activities as from the effective date of this Circular.

IV. ENTERPRISE INCOME TAX (EIT)

1. Taxation objects:

The entire income from oil and gas prospection, exploration and exploitation activities and other incomes of organizations and individuals conducting oil and gas prospection, exploration and exploitation shall be liable to enterprise income tax.

2. Determining the taxable income:

The taxable Income from oil and gas,

income in the tax = prospection exploration and exploitation + Other incomes

calculation year in the tax calculation year

2.1. Income from oil and gas prospection, exploration and exploitation activities in the tax calculation year is equal to the turnover from oil and gas prospection, exploration and exploitation activities minus (-) the expenses related to these activities.

2.1.1. The turnover from oil and gas prospection, exploration and exploitation activities is the entire value of oil and gas output actually sold under square transaction contracts in the tax calculation year.

Where oil and gas are not sold under the square transaction contracts, the turnover from oil and gas prospection, exploration and exploitation activities shall be determined by way of multiplying the corresponding oil and gas volume by the selling prices set by the tax offices as guided at Point 3.1, Section I, Part Two of this Circular.

2.1.2. Expenses related to oil and gas prospection, exploration and exploitation to be subtracted when determining the taxable income shall include:

2.1.2a. Expenses allowed to be recovered in the tax calculation year are those actually arising, directly related to oil and gas prospection, exploration and exploitation activities within the scope of the petroleum contract, and audited annually.

When determining the taxable income in the tax calculation year, the tax payers may subtract the actually arising expenses allowed to be recovered but not beyond the percentages agreed upon in the petroleum contracts. Where the petroleum contracts contain no agreement on expense recovery percentages, the expense recovery percentage to be subtracted upon the determination of taxable income shall be 35%.

The expense amounts considered to be expenses allowed to be recovered shall be agreed upon by the parties in the petroleum contracts, but include the following principal expenses:

- The costs of raw materials, materials, fuels, energy, machinery, equipment, transport means, working instruments, goods actually used for oil and gas prospection, exploration and exploitation activities;

- Wage, remuneration and amounts of wage and remuneration character; mid-shift meal and allowances, subsidies paid to Vietnamese and foreign laborers on the basis of labor contracts or collective labor agreements in conformity with the provisions of the Vietnamese legislation on labor;

- Expenses for scientific and technological research; expenses for innovations and modification; expenses for environmental protection; expenses for maintenance of warehouses, buildings, fire prevention and fighting; expenses for education, training and health care;

- Expenses for services bought from outside:

+ Electricity, water, postal services, auditing rent, printing of documents;

+ Expenses for liability insurance, property insurance under contracts signed with Vietnam insurance companies or other insurance companies licensed for lawful operation in Vietnam (hereinafter called the insurance enterprises). For insurance operations under the international practices, which the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities are obliged to participate in, but at the time when the insurance demand arises the insurance enterprises fail to satisfy such arising insurance demand, the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities may participate in the insurance at foreign insurance companies. The expenses for insurance participation shall be accounted as expenses allowed to be recovered.

+ Procurement expenses or payment for the use of technical documents, services, techniques; expenses for transfer of technology, copyright, patents, trademarks under technology transfer contracts, license contracts, already approved by the Ministry of Science, Technology and Environment or competent bodies.

+ Expenses for renting assorted machinery, equipment, means in service of oil and gas prospection, exploration and exploitation activities under renting contracts;

+ Expenses for consultancy under consultancy hiring contracts and expenses for other services hired from outside;

- Expenses for dismantling fixed constructions in services of oil and gas prospection, exploration and exploitation activities.

- Expenses directly related to the consumption of oil and gas such as the cost of maintenance, the costs of loading, unloading, transport, depot and yard renting.

- Expenses for management and administration, including expenses for general management and administration directly related to oil and gas prospection, exploration and exploitation activities arising in Vietnam.

- VAT already paid for goods and/or services used for the production of or trading in VAT-free goods and/or services.

- Amounts of taxes, charges and fees of tax character, excluding natural resource tax, export tax, value added tax on goods and/or services sold out, which are liable to value added tax, enterprise income tax, tax on transfer of profit abroad.

2.1.2b. Natural resource tax and export tax must be paid in the tax calculation year.

2.1.2c. The petroleum commission agreed upon in the petroleum contracts such as signature commission, commercial discovery commission, production commission actually arising in the tax payment period. Particularly the petroleum commissions arising before the commercial production shall be distributed according to the time limits applicable to depreciation of intangible fixed assets as currently provided for by the Finance Ministry, when determining the taxable income.

2.1.2d. The donations and financial assistance amounts contributed for social and/or charity purposes to Vietnamese organizations and individuals such as donations for overcoming the consequences of natural calamities, unexpected accidents, contributions to the fund in support of Vietnamese hero mothers, martyrs� families, people with meritorious services to the revolution, supportless disabled persons, to funds against social evils-related diseases.

All the above-listed expenses must be evidenced by valid vouchers; any expense without vouchers or with invalid vouchers shall not be accounted as expenses when determining income liable to enterprise income tax.

2.2. Other incomes in the tax calculation year include:

2.2.1. The difference between securities purchase and sale after minus the expenses related to securities trading;

2.2.2. Income from the right to own, the right to use property, including:

+ Income from property leasing;

+ Income from the use of or the right to use intellectual property;

+ Other incomes from the right to own, the right to use property.

For cases of property loss or damage due to subjective causes, the loss amounts related to such property must not be accounted into other incomes and the subjects liable to make compensations therefor according to law provisions must be determined.

2.2.3. Income from property transfer, liquidation;

2.2.4. Loan interests, deposit interests, including the deposit interest arising from the capital-calling amounts of contractors, which have not yet been used for oil and gas prospection, exploration and exploitation activities.

2.2.5. Foreign currency trading difference, exchange rate difference under the guidance of the Finance Ministry;

2.2.6. Income from bad debts which have been already written off from the accounting books and now reclaimed.

2.2.7. Payable debts whose creditors cannot be identified.

2.2.8. Income from oil and gas prospection, exploration and exploitation activities and other incomes related to oil and gas prospection, exploration and exploitation activities from the previous years which have not yet been included in the financial reports of those years and have been detected this year.

2.2.9. Incomes from other turnovers related to oil and gas prospection, exploration and exploitation activities such as the proceeds from the sale of oil and gas in the period of trial production before commencing the commercial production; the proceeds from the sale of supplies not used up while the costs of these supplies have already been accounted as expenses to be recovered; revenues from the sale of discard materials, charges collected from customers for use of means and material foundations in the course of oil and gas purchase and other revenues, after subtracting the expenses for the generation of taxable incomes.

2.2.10. Other incomes such as bonuses from customers, gifts, presents�.

3. Determining the payable tax amount:

The enterprise income The taxable The enterprise

tax amount payable in = income in the tax x income

the tax calculation year calculation year tax rate

In which:

l The taxable income in the tax calculation year shall be determined as guided at Point 2 of this Section IV.

l The enterprise income tax rate is prescribed in Article 33 of the Petroleum Law and specifically inscribed in the investment licenses or the petroleum contracts but approved by the investment licenses.

For petroleum contracts signed in form of production-sharing contract or joint- administration contract: The enterprise income tax amount to be paid by each contractor shall be equal to the payable enterprise income tax amount (determined under the above guidance) multiplying by (x) the divided petroleum profit of each contractor in the petroleum contract.

4. Tax declaration, payment and settlement:

The enterprise income tax shall be temporarily paid on a quarterly basis and settled according to the tax calculation year. The enterprise income tax calculation year shall commence on January 1 and end on December 31. Where a tax payer applies the fiscal year other than the calendar year, which has been approved by the Finance Ministry, the tax calculation year shall be such fiscal year.

The first tax calculation year shall be determined as from the first day of carrying out the oil and gas prospection, exploration and exploitation activities till the last day of such calendar year or the last day of such fiscal year.

The final enterprise income tax calculation year shall be counted from the starting day of the calendar year or the starting day of the fiscal year till the day the petroleum contract terminates.

4.1. Temporary payment of tax:

For petroleum contracts with the percentage of temporarily paid enterprise income tax amounts being determined as guided below, the temporary payment of enterprise income tax shall be made upon each delivery for sale.

4.1.1. Determining the temporarily paid enterprise income tax amount:

The Turnover of oil The

temporarily paid = and gas x temporarily paid

EIT amount delivered for sale EIT percentage

In which:

l The turnover from oil and gas sale is the total value of the net oil and gas output sold under the square transaction contract of each delivery for sale.

l Where oil and gas are not sold under the square transaction contract, the turnover from oil and gas prospection, exploration and exploitation activities shall be determined by way of multiplying the corresponding oil and gas output by the selling price set by the tax office as guided at Point 3.1, Section I, Part Two of this Circular.

The temporarily paid enterprise income tax percentage shall be determined under the following guidance:

The The The

temporarily percentage temporarily The export The

paid EIT = 100% - of expenses - paid natural - tax x EIT

percentage allowed to be resource tax percentage rate

recovered percentage

Example 6: Determining the temporarily paid EIT percentage for crude oil exploitation:

Presumably:

+ The percentage of expenses allowed to be recovered: 35%

+ The temporarily paid natural resource tax percentage (according to Example 3 above): 16.175%.

+ The temporarily paid export tax percentage (according to Example 5): 3.353%.

+ The enterprise income tax rate: 50%.

The temporarily paid enterprise income tax percentage shall be:

(100% - 35% - 16.175% - 3.353%) x 50% = 22.736%.

In case of temporary payment of enterprise income tax from natural gas exploitation, the temporarily paid enterprise income tax percentage shall be determined similarly as above.

Annually, the Finance Ministry or the body authorized by the Finance Ministry shall notify the temporarily paid enterprise income tax percentage for each petroleum contract together with the temporarily paid natural resource tax percentage and the crude oil export tax payment percentage.

4.1.2. Tax declaration and temporary payment:

- Where enterprise income tax is temporarily paid upon each delivery for sale, the organizations and individuals conducting oil and gas prospection, exploration and exploitation shall make and send to the tax offices the declaration on the temporary payment of enterprise income tax (made according to set form) and pay the declared tax amount together with the temporary payment of natural resource tax as guided at Point 3.1, Section I, Part Two of this Circular.

- Where enterprise income tax is temporarily paid on the quarterly basis, the enterprise income tax declaration and temporary payment shall be effected as follows:

Annually, on the 25th of the first month of the tax calculation year at the latest, the tax payers shall have to make and send the declaration on enterprise income tax to the tax offices (made according to set form). The bases for making such declaration shall be the production and business results of the tax calculation year and the business capability of the following tax calculation year.

After receiving the declarations, the tax offices shall check them, determine the tax amount temporarily paid for the whole year and divide it for each quarter to notify the tax payers of the temporarily paid tax amount. Where tax payers fail to declare or declare unclearly the bases for determining the tax amount temporarily paid for the whole year, the tax offices may fix the temporarily paid tax amount.

Where there appear big changes in the taxable income in the tax calculation year, the tax offices shall readjust the temporarily paid tax amount. The readjustment shall be made at the request of the tax payers after the latter make the financial reports for the first 6 months of the tax calculation year.

The tax payers shall temporarily pay the enterprise income tax quarterly according to the tax payment notices of the tax offices and on the last day of the quarter at the latest. Upon the end of the tax calculation year or upon the termination of the contract, the settlement shall be made according to reality.

- Where each contractor pays tax separately, the administrators or the joint administration companies shall determine the enterprise income tax amount to be paid by each contractor, make and send to the tax offices the declaration on temporary payment of enterprise income tax (made according to set form) for each contractor and pay tax on behalf of each contractor.

- Before conducting oil and gas exploitation activities, the tax payers shall only have to declare and pay the enterprise income tax for other production and business activities.

4.2. Settlement of enterprise income tax:

The settlement of enterprise income tax shall be carried out annually according to the provisions in Part Three of this Circular.

5. Tax exemption and reduction:

The tax offices shall base themselves on the stipulations in the investment licenses or the Prime Minister�s decisions on the duration of enterprise income tax exemption or reduction to determine the tax amounts to be exempt or reduced; as well as the payable tax amounts for the tax payers.

The first year with taxable income is the first tax calculation year when arises the taxable income, which shall be determined as guided at Point 2 of this Section IV.

V. TAX ON INCOME FROM THE TRANSFER OF CAPITAL AMOUNTS CONTRIBUTED FOR PARTICIPATION IN PETROLEUM CONTRACTS

1. Vietnamese organizations conducting oil and gas prospection, exploration and exploitation activities, which transfer their capital amounts contributed for participation in the petroleum contracts and have incomes shall have to pay enterprise income tax on the income earned from the transfer of their capital amounts in the petroleum contracts according to the provisions of the legislation on enterprise income tax.

2. Foreign organizations and individuals conducting oil and gas prospection, exploration and exploitation activities, that transfer their capital amounts in the petroleum contracts and have incomes shall have to pay tax on the incomes earned from the transfer of capitals for participation in the petroleum contracts according to the provisions of the Law on Foreign Investment in Vietnam and the guidance in this Circular.

The taxes on the income from the transfer of capital contributed for participation in the petroleum contracts shall include the enterprise income tax and the tax on transfer of profit abroad, specifically:

2.1. The enterprise income tax:

The income earned from the transfer of capital amounts in the petroleum contracts shall be liable to the enterprise income tax as provided for by the Law on Foreign Investment in Vietnam.

The payable The The enterprise income

enterprise = taxable - tax rate for income

income tax income from capital transfer

2.1.1. Taxable income:

The The The initial value The

taxable = transfer - of the transferred - transfer

income value capital amount expenses

In which:

l The transfer value is determined as the total actual value the transferor earns under the transfer contract. Where the transfer contract fails to specify the payment price or the tax office has grounds to determine that the payment price has not been determined at the market price, the tax office may check and fix the payment price of the contract on the basis of reference to the market prices or the price of possible sale to the third party and the similar transfer contracts.

l The initial value of the transferred capital amount is determined on the basis of accounting books and vouchers on expenses allowed to be recovered by the Contractor being a party to the petroleum contract at the time of capital transfer, after subtracting the already recovered expenses (if any), recognized by the foreign Contractors to the petroleum contract and Vietnam Oil and Gas Corporation.

Where the subsequent contractors further transfer the capital amounts for participation in the petroleum contracts, the initial value of the capital amount to be transferred each subsequent time is determined as equal to the transfer value of the preceding transfer contract plus the expenses allowed to be additionally recovered (if any), which is determined according to the principles stated in this clause.

l Transfer expenses are the actual expenses directly related to the transfer, according to the original vouchers recognized by the tax offices. Where the transfer expenses arise overseas, such original vouchers must be affirmed by a notary office or an independent audit of the country where the expenses arise.

The transfer expenses shall include: the expense for carrying out necessary legal procedures for the transfer; charge and fee amounts payable when carrying out the transfer procedures; the expenses for transactions, negotiations and signing of transfer contracts, etc., evidenced by vouchers.

2.1.2. The tax rate:

The rate of enterprise income tax on income from capital transfer shall be 25%.

2.1.3. Tax declaration and payment:

The capital transferor shall be the payers of income tax on the transfer of capital amounts in the petroleum contracts but the capital transferee shall have to deduct the tax amount to be paid by the transferor and remit it into the State budget.

Within 5 working days as from the date the competent body approves the capital transfer, the capital transferee shall have to make the declaration of tax on capital transfer and submit it to the local tax office where the tax declaration and payment is registered (made according to set form) together with the transfer contract (copy certified by the transferee), the competent body�s decision to approve the capital transfer (copy certified by the transferee), the transferor�s certification that the to be- recovered expenses constitute the initial value of the transferred capital amount and original vouchers on the transfer expenses; and at the same time fully pay the payable tax amount into the State Treasuries, then send the copy of the tax payment receipt to the body which has approved the capital transfer.

In cases where the declaration and calculation of the payable tax amount are found inaccurate, the tax offices shall, within 5 working days after receiving the declarations, have to notify the payable tax amounts to the capital transferor or request the capital transferor to supply necessary documents for the accurate determination of the payable tax amount.

2.2. Tax on transfer of profits abroad:

Foreign organizations and individuals conducting oil and gas prospection, exploration and exploitation activities that have incomes from the capital transfer, after paying tax on income from the capital transfer as guided at Point 2.1 above, when transferring profits abroad or retaining their profits overseas, shall have to pay tax on transfer of profits abroad under the guidance in Section VI below.

VI. TAX ON TRANSFER OF PROFITS ABROAD

1. Taxation objects:

The after-enterprise income tax profits (including income from capital transfer) of foreign organizations and individuals or overseas Vietnamese, that conduct oil and gas prospection, exploration and exploitation activities, if being transferred out of Vietnam or retained outside Vietnam, shall be liable to tax on transfer of profits abroad as provided for in the Law on Foreign Investment in Vietnam.

Where foreign organizations and individuals or overseas Vietnamese that conduct oil and gas prospection, exploration and exploitation activities in Vietnam use the profits earned from oil and gas prospection, exploration and exploitation activities to buy goods in Vietnam and transfer them abroad, or to pay debts for their parent companies, or use their divided profits to cover the expenditures of their parent companies� representative offices in Vietnam, or transfer them from their accounts for unclear purposes, they shall all be considered as having transferred their profits abroad and have to pay tax on transfer of profits abroad.

Where foreign organization or individuals or overseas Vietnamese transfer profits abroad in oil and gas, the profits subject to tax on transfer of profits abroad shall be determined as equal to the oil and gas volume subject to tax on transfer of profits abroad multiplying (x) by the oil and gas selling price under the square transaction contract. Where oil and gas are not sold under the square transaction contract, the oil and gas selling price shall be determined by the tax offices under the guidance at Point 3.1, Section I, Part Two of this Circular.

2. The tax payers:

Foreign organizations and individuals or overseas Vietnamese conducting oil and gas prospection, exploration and exploitation activities and have profits transferred abroad shall be the payers of tax on transfer of profits abroad.

Foreign organizations and individuals or overseas Vietnamese conducting oil and gas prospection, exploration and exploitation activities, that transfer abroad their profits in oil and gas shall, apart from having to pay tax on transfer of profits abroad, also have to pay the oil and gas export tax. The payment of oil and gas export tax shall comply with the guidance in Section II, Part Two of this Circular.

3. Determining payable tax amounts:

The payable amount of tax on transfer of profit abroad is determined as equal to the profit amount transferred abroad or considered to be transferred abroad or the profit amount retained by the investors outside the Vietnamese territory multiplying (x) by the rate of the tax on transfer of profits abroad prescribed in the investment license. Where the granted investment license fails to specify the rate of tax on transfer of profit abroad, such rate shall comply with the provision in Article 50 of Decree No. 24/2000/ND-CP of the Government detailing the implementation of the Law on Foreign Investment in Vietnam.

For cases where the investment licenses issued before July 1, 2000 specify a rate of tax on profit transfer abroad higher than that prescribed in Article 50 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000, the payers of tax on transfer of profits abroad shall file their applications to the investment-licensing bodies for the adjustment of their investment licenses. Pending the official adjustment, if transferring profits abroad, the tax payers shall file their applications to the local Tax Departments, clearly stating the conditions for enjoying the new tax rate and declare and pay tax at the new rate. The new profit transfer tax rate shall apply to the profit amounts transferred abroad as from July 1, 2000. Where tax payers have already paid the profit transfer tax for the profit amounts transferred abroad as from July 1, 2000 at a tax rate higher than that prescribed in Article 50 of the Government�s Decree No. 24/2000/ND-CP of July 31, 2000, the overpaid tax amount shall be cleared against the payable tax amount of the subsequent profit transfer.

Where foreign organizations and individuals or overseas Vietnamese conducting oil and gas prospection, exploration and exploitation activities earn profits from the transfer of their capital for participation in the petroleum contract before the commercial output is achieved, when transferring their profits abroad, the tax rate therefor must be determined according to the expense amounts actually recovered at the time of transfer in accordance with the provisions in Article 50 of Decree No. 24/2000/ND-CP.

4. Tax payment procedures:

The tax on transfer of profits abroad shall be collected upon each transfer of profit abroad. Where the profits are used to pay debts for parent companies, to cover the expenditures of the parent companies� offices in Vietnam, the tax payers shall declare and pay tax on transfer of profits abroad monthly. Where profits are retained outside Vietnam according to each delivery for sale, the tax payers shall declare and pay tax together with the declaration and temporary payment of natural resource tax and/or enterprise income tax.

Before transferring their profits abroad or on the 5th of the following month at the latest, for cases where profits are used for purposes considered as transfer of profits abroad, or retained outside Vietnam, the tax payers shall have to make and submit the tax declaration to the tax offices (made according to set form), and at the same time pay the declared tax amounts into the State treasuries.

Within 5 days after receiving the declaration forms, the tax offices shall check them and, if detecting any errors in the declarations, shall have to issue notices on the payable tax amounts to the tax payers. The tax payers shall have to additionally pay the outstanding tax amounts into the State Treasuries according to the tax offices� notices. Where past the prescribed time limits for submission of the declarations the tax payers still fail to submit the declarations, the tax offices may fix the payable tax amounts, issue tax notices and impose sanction for late declaration and payment of tax.

The State Treasuries shall hand back to each tax payer a copy of the voucher on profit transfer tax payment for carrying out the procedures for the transfer of money abroad.

Annually, within 90 days after the end of the fiscal year, foreign organizations and individuals or overseas Vietnamese conducting oil and gas prospection, exploration and exploitation activities shall have to report to the tax offices on their divided profit amounts, the use of profits and the payment of tax on transfer of profits abroad for the divided profit amounts of the previous years. Where the tax payers have already paid tax on the transfer of profits abroad but in fact do not transfer the profits abroad or do not use them for purposes considered to be the transfer of profits abroad, they shall be entitled to deduct the already paid profit transfer tax amounts into the payable tax amount of the subsequent tax payment or to be refunded the paid tax amounts. The dossiers requesting the reimbursement of paid tax amount shall include:

+ The official dispatch requesting the reimbursement of the paid tax amount. Its contents must clearly state the reasons therefor, the name, address and account number of the subject entitled to the reimbursement of the paid tax amount.

+ The list of the paid tax amounts, enclosed with vouchers on payment of money into the treasuries (copies thereof) and the treasuries� certification of the paid tax amounts (clearly inscribing the tax amounts paid into chapters, categories, items, grades as prescribed by the State budget index).

+ The certification by the bank where the tax reimbursement requester opens account for deposit of the profit amount for which the tax on transfer of profits abroad has been paid that the tax reimbursement requester has not yet transferred abroad the profit amount which has already been declared and taxed.

The dossiers requesting the tax reimbursement shall be sent to the local tax offices where the tax payers have registered the tax payment. The tax offices shall check the dossiers. If the tax reimbursement- requesting dossiers are found complete and valid, the tax offices shall, within 7 days, have to send the tax reimbursement dossiers to the Finance Ministry (The General Department of Tax) for issuing decisions on tax reimbursement. Where the tax reimbursement- requesting dossiers are incomplete and invalid, the tax offices shall, within 5 days, notify the tax reimbursement requesters thereof in writing.

Within 15 days after receiving the complete and valid dossiers, the Finance Ministry shall issue decisions to reimburse tax to the requesters.

VII. OTHER TAXES, CHARGES AND FEES

In the course of production and business activities, organizations and individuals conducting oil and gas prospection, exploration and exploitation shall have to pay taxes, charges and fees such as the license tax, the special consumption tax, the copyright income tax, the land, water or sea surface rent, registration fee� according to the provisions in current legal documents.

Part Three

ANNUAL TAX SETTLEMENT AND INSPECTION OF ANNUAL TAX PAYMENT

I. ANNUAL TAX SETTLEMENT

At the end of every fiscal year, the tax payers shall have to make and send tax settlement reports to the tax offices. The annual tax settlement shall be carried out with the contents guided below:

1. Within 90 days after the end of a fiscal year, the tax payers shall have to submit the reports on production and business situation, the accounting reports already audited by Vietnam Oil and Gas Corporation or an independent audit licensed to operate in Vietnam, the enterprise income tax settlement reports and the reports on settlement of assorted taxes paid in the year, to the local tax offices.

Within 10 days as from the above-prescribed date of submitting the tax settlement reports, the tax payers shall have to pay the outstanding tax amounts according to the settlement report into the State budget. If failing to make such payment after those 10 days, apart from the full payment of the outstanding tax amount, the tax payers shall also have to pay a fine for the late payment thereof as prescribed. In case of overpayment, they may deduct the overpaid amount from the tax amount to be paid subsequently.

Tax payers are not allowed to clear the overpaid amount of one tax against the underpaid amount of another tax when making the annual tax settlement.

2. Basing themselves on the production and business reports as well as the financial settlement reports of the tax payers, the Tax Departments of the provinces and centrally-run cities shall recalculate each kind of tax to be paid by the tax payers in the fiscal year, and at the same time compare them with the periodical tax declarations in the year, the temporarily paid tax amounts in order to determine the accuracy of the tax declarations as well as tax settlement reports. Where tax reports are made inaccurately, the tax offices shall organize the inspection of the tax payment by each tax payer.

II. INSPECTION OF THE ANNUAL TAX PAYMENT SITUATION

In the course of tax management over petroleum contracts, the provincial/municipal Tax Departments shall have to organize tax inspections regularly or irregularly when necessary. Before conducting the inspections, the tax offices shall have to issue inspection decisions, clearly stating the inspection contents and time limits. The inspection decisions shall be addressed to tax payers 3 days before the inspections start. In cases where contents other than those inscribed in the inspection decisions need to be inspected or the inspection duration needs to be prolonged, the tax offices shall have to make additional inspection decisions.

The inspection results must be recorded in writing with the signatures of competent representatives of tax payers or organizations authorized to pay tax for them and representatives of the tax offices which conduct the inspection. These inspection records must be sent by the tax offices to the Finance Ministry (the General Department of Tax) together with the financial reports as well as the reports on the situation of tax payment by tax payers (copies thereof).

Where tax payers disagree with the tax offices� conclusions in the inspection records, they may lodge their complaints to the General Department of Tax and the Finance Ministry. Pending the settlement of their complaints, the tax payers shall still have to abide by the conclusions made by the tax offices.

Annually, the provincial/municipal Tax Departments may coordinate with Vietnam Oil and Gas Corporation in conducting periodical inspection through auditing campaigns of the tax payment by tax payers. In the course of regular inspection of tax payment, if the tax offices deem it necessary to conduct separate inspections according to the regulations on inspection over the tax payers, they may proceed with the inspection steps as guided above.

The contents of regular inspection of the tax payment by tax payers shall include:

+ The inspection of tax payment by tax payers in the tax declaration forms and the tax settlement reports. In case of detecting that the tax payment declaration is inaccurate or the payable tax amount is not fully declared, they shall request the concerned tax payer to produce accounting books and relevant vouchers in order to determine accurately the payable tax amount and issue a notice requesting the tax payer to fully pay the outstanding tax amount within 5 days, to be deducted from the subsequent tax payment or guide the tax payer to carry out procedures for tax reimbursement (if any).

+ Inspection of the expenses allowed to be recovered: accrual of the amount of expenses allowed to be recovered; expenses already recovered; accrual of expenses not yet recovered.

Within 30 days after ending the regular inspection of the situation of tax payment by tax payers according to each petroleum contract, the provincial/municipal Tax Departments shall have to make sum-up reports to the Finance Ministry (the General Department of Tax) on the results of the inspection of the above contents together with the copy of the auditing record of each petroleum contract.

III. MAKING TAX SETTLEMENT WHEN PETROLEUM CONTRACTS EXPIRE OR TERMINATE AHEAD OF TIME BY DECISIONS OF THE LICENSING BODIES

Within 45 days after the investment-licensing body issues decision on the expiry or ahead-of- time termination of a petroleum contract, the tax office should promptly proceed with the following tasks:

+ Conducting the inspection of the tax settlement report: determining the arising tax amount, the tax amount already paid, the tax amount to be further paid, the overpaid tax amount (if any) in order to notify the tax payers to pay them into the State budget or guide them to carry out procedures for tax reimbursement request.

+ Giving certification to tax payers being foreign organizations and individuals (if so requested) of the enterprise income tax amounts, the tax amount on transfer of profits abroad, tax on income from the transfer of capital in the petroleum contracts, the personal income tax amount already paid in Vietnam;

+ Summing up the expenses allowed to be recovered; expenses already recovered; accrual of expenses not yet recovered.

Part Four

TAX PAYMENT CURRENCIES AND OTHER GUIDANCES

I. TAX PAYMENT CURRENCIES

Where oil and gas are sold in US dollars or freely convertible foreign currencies, the currencies for payment of taxes related to petroleum activities, including natural resource tax, export tax, enterprise income tax, shall be the US dollars or freely convertible foreign currencies actually collected.

Where oil and gas are sold in Vietnam dong, the currency for payment of taxes related to petroleum activities shall be the Vietnamese currency.

The conversion from foreign currencies into Vietnam dong or vice versa shall be made at the average transaction exchange rates on the inter-bank foreign currency market announced daily on Nhan Dan (People) paper. In cases where Nhan Dan paper is not published or does not announce the exchange rates, the applicable conversion exchange rates shall be those of the preceding day.

The budget revenues from oil and gas prospection, exploration and exploitation activities shall be accounted into the Budget Index according to the current regulations.

II. PLACES FOR TAX DECLARATION AND PAYMENT

1. Granting of tax codes:

The tax payers shall make tax declaration and registration so as to be granted the tax code for each petroleum contract (including tax-free contracts) under the guidance in Circular No. 79/1998/TT-BTC of June 12, 1998 of the Finance Ministry.

For petroleum contracts signed in forms of product contract or joint-administration contract, the administrators or the joint-administration companies shall have to fully declare the contractors participating in the petroleum contracts into the list of attached units and declare the subcontractors into the list of contractors, enclosed with the tax declaration forms. The contractors shall make tax declaration and registration according form 02-DK-TCT issued together with Circular No. 79/1998/TT-BTC. The tax offices where the administrators or the joint administration companies make the tax registration shall grant tax codes applicable to the tax payers being enterprises to contractors being the administrators or the joint administration companies and grant tax codes applicable to the tax payers being units attached to enterprises to each contractor, including contractors being Vietnamese enterprises participating in the petroleum contracts in their capacity as contractors. Where a contractor participates in many petroleum contracts, the contractor shall be given tax code for each petroleum contract.

The tax offices where tax payers make tax registration shall have to grant tax codes within 15 days as from the date of receiving the tax registration papers, which have been fully and accurately declared according to regulations.

When petroleum contracts expire or terminate ahead of time, the tax payers shall notify the tax offices where they make tax registration of the decisions of the Ministry of Planning and Investment on the contract termination. The provincial/municipal Tax Departments shall have to notify the cancellation of tax codes for the terminated petroleum contracts. The tax codes already granted to such petroleum must not be used and granted to other tax payers. Where a contractor transfer the entire rights and obligations in the petroleum contract to another subject, such subject shall have to make registration with the tax office so as to be allowed to use the tax code granted to the previous contractor. If the contractor transfer part of the contractual rights and obligations to another subject, the new subject participating in the petroleum contract shall make registration with the tax office so as to be granted the tax code.

2. Tax declaration and payment locations:

2.1. The places for tax payment registration shall be the Tax Departments of the localities where the tax payers locate their head offices.

2.2. For petroleum contracts signed before the promulgation of this Circular, the places for tax payment declaration shall comply with the current guidance.

III. RESPONSIBILITIES OF ORGANIZATIONS AND INDIVIDUALS CONDUCTING OIL AND GAS PROSPECTION, EXPLORATION AND EXPLOITATION ACTIVITIES

1. To strictly comply with the procedures for registration of tax code granting, tax registration with the tax offices under the guidance in this Circular. Within 5 days at most as from the time they relocate their executive offices, to carry out procedures for tax registration with the provincial/municipal tax offices (according to set form).

2. In the course of production and business activities, to strictly abide by the regulations on tax declaration and tax settlement.

3. Annually, to report on the petroleum production plans, the production and business situation, the expenses allowed to be recovered, the expenses already recovered, the accrual of expenses not yet recovered, to the tax offices.

4. To fully produce accounting books, vouchers and necessary documents related to tax calculation and tax settlement when so requested by the tax offices.

5. To pay tax fully and on time as prescribed.

6. Upon the decisions on the expiry of the oil and gas prospection, exploration and exploitation operation or the ahead-of-time termination of the petroleum contracts, to notify such to the tax offices and submit the tax settlement reports on time.

IV. RESPONSIBILITIES AND POWERS OF TAX OFFICES

1. To guide the tax payers to make tax registration and declaration strictly according to the prescribed regime, notify the tax payers of the accounts, budget index for payment of assorted taxes.

2. To check the tax declaration forms, examine accounting books, vouchers and necessary documents for tax calculation, to request tax payers to answer unclear matters related to the tax calculation.

3. To calculate and notify payable tax amounts to tax payers. To fix payable tax amounts in cases where the tax payers fail to voluntarily make registration within the prescribed time limits or make inadequate and inaccurate declaration or fail to supply fully, accurately information related to the tax calculation or where the revenues are affected by the financial and trade relations not under the square transaction contracts.

4. To inspect the annual tax payment situation as provided for in Section I1, Part Three of this Circular.

5. To make written records of and handle tax-related violations within their competence prescribed by law.

6. To strictly observe the tax legislation, ensuring the truthfulness, accuracy and objectiveness.

7. To inspect the registration of accounting regimes to be applied by the tax payers and inspect the implementation of the registered accounting regimes.

8. To certify tax amounts already paid by foreign organizations and individuals conducting oil and gas prospection, exploration and exploitation, if so requested by these subjects.

V. HANDLING VIOLATIONS AND SETTLING COMPLAINTS

1. The violations of tax legislation shall be sanctioned as follows:

- Failure to strictly comply with the provisions on tax registration as provided for at Point 1, Section II, Part Four of this Circular shall be subject to sanctions as prescribed in the Government�s Decree No. 22/CP of April 17, 1996 on sanctioning administrative violations in the field of tax and the current guiding documents.

- Failure to strictly comply with the provisions on tax payment declaration shall be subject to fines as prescribed in the Ordinance on Handling of Administrative Violations, Decree No. 22/CP of the Government and the current guiding documents.

- False declaration of tax money shall be fined up to 5 times the falsely declared tax amount.

- Late payment of tax shall be subject to a fine equal to 0.1% (one thousandth) of the late paid tax amount for each day of late payment.

2. Competence to handle violations and complaints

- The competence to handle tax-related violations shall fall under the Tax Departments of provinces and centrally-run cities which directly manage the tax collection.

- Tax payers� complaints about tax shall be considered and settled by the tax offices which directly collect tax. If the involved parties disagree with the settlement by the tax offices they may lodge their complaints to the superior tax offices and the Finance Ministry or initiate lawsuits according to law provisions.

Pending the settlement of the complaints, the complainants must strictly abide by the decisions of the tax offices.

VI. ORGANIZATION OF IMPLEMENTATION

This Circular takes effect 15 days after its signing, replaces the Finance Ministry�s Circular No. 35/1998/TT-BTC of March 21, 1998 guiding the procedures for import tax exemption for organizations and individuals conducting petroleum activities under the Petroleum Law, replaces the previous guidances contrary to the guidances in this Circular and applies to the settlement of natural resource tax, export tax and enterprise income tax of the 2000 fiscal year.

Where petroleum contracts signed and granted the investment licenses before the Petroleum Law takes effect otherwise provide for the tax rates, the exemption and reduction of enterprise income tax, the agreements in such petroleum contracts shall apply, other taxes and fees shall comply with the guidance in this Circular. Particularly the petroleum contract for block 05.1 (Big Bear field) shall be exempt from export tax for four years as from 1999 and pay natural resource tax at the tax rate under the direction of the Prime Minister in Official Dispatch No. 1295/VPCP of March 29, 1999.

The payment of tax on transfer of profits abroad by the Russian party to the Vietsovpetro joint venture shall continue to comply with the guidance in Official Dispatch No. 2270/TC-TCT of May 13, 1999 of the Finance Ministry.

The provincial/municipal Tax Departments shall have to organize the implementation of, disseminate and guide tax payers to implement, the provisions of this Circular.

The Tax Departments shall have to arrange officials to work on full-time basis for the management of the collection of various taxes from organizations and individuals conducting oil and gas prospection, exploration and exploitation activities under the Petroleum Law. This management body shall have to monthly, quarterly and annually report to the Finance Ministry (the General Department of Tax) on the tax collection and make other reports in service of the general requirement of managing the organizations and individuals conducting oil and gas prospection, exploration and exploitation activities assigned to them for management.

For the Minister of Finance

Vice Minister
VU VAN NINH